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Tuesday, April 19, 2011

Petronas Gas - Buy with higher TP of RM13.50

Transformation takes shape
• Maiden contributions from regasification and power plants in FY12-13
• PGU gas supply will increase by up to 20% after completion of Melaka regasification plant
• Signing of RSA and PPA will be key catalysts; upgrade to Buy with higher TP of RM13.50

Transforming into multi-utility player.
Petgas will turn into a multi-utility player with the completion of its Melaka regasification plant in Jul 2012 and Kimanis power plant in 2013. We expect the regasification services agreement (RSA) between Petgas and Petronas to be finalized soon. There will be no fuel cost risk under
the RSA as gas supply will be procured by Petronas. Assuming RM1.5bn investment and 9% IRR, the plant will add 18% to net profit from FY13 onwards. We estimate IRR at 9% for the Kimanis power plant, and Petgas’s 60% stake will entitle it to c.RM130m annual contribution from FY14 onwards.

Sustainable 4% net yield despite higher capex.
Petgas registered strong net cash of RM2.1bn (RM1.06/share) for 9M11. We expect capex to rise to RM1.5bn p.a. over FY12-13 with the new investments, but FCF will remain strong at >RM600m due to improved profitability under the 4th GPTA. Petgas does not have a dividend policy. We assumed 66-68% net payout for FY11-12F with sustainable 50 sen DPS.

Additional gas supply to PGU.
We expect higher revenue for Petgas’ PGU gas volume upon completion of the Melaka regasification plant, as the 4th GPTA allows the use of third party gas. We raised FY13-14F net profit by 3%-18% after imputing additional 200mmscfd of gas volume that will be transported by PGU, and maiden contribution from the regasification plant. Consequently, our DCF-derived target price is raised to RM13.50/share.

Report from HWangDBS

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